The idea that individuals can reach an efficient equilibrium through private trades,even in the presence of an externality,is called:
A)the Coase theorem.
B)market failure.
C)trade quotas.
D)the invisible hand.

Question

Quizplus · Accepted Answer

The Coase theorem states that in the presence of an externality, individuals can reach an efficient equilibrium through private trades, regardless of the initial allocation of property rights, provided that transaction costs are sufficiently low. Therefore, choice A is the correct answer. Market failure (choice B) refers to situations where markets fail to allocate resources efficiently, due to reasons such as externalities, market power, or public goods. Trade quotas (choice C) refer to government policies that restrict the amount of a good that can be imported or exported. The invisible hand (choice D) refers to the idea postulated by Adam Smith that markets tend to allocate resources efficiently as a result of self-interested individuals seeking their own gains. However, this concept does not specifically address the issue of externalities.

The Idea That Individuals Can Reach an Efficient Equilibrium Through